FOREX-Dollar slides vs euro ahead of Fed meeting, U.S. GDP data

Reuters Staff

4 Min Read

* U.S. Q2 GDP seen up 1.0 percent

* Fed meeting in focus as ECB, BoE also meet this week

* Aussie falls on RBA comment, weak GDP dents Swedish crown

By Gertrude Chavez-Dreyfuss

NEW YORK, July 30 (Reuters) - The dollar fell to a nearly six-week low against the euro on Tuesday as investors positioned for a soft second-quarter U.S. economic growth report, which would reinforce expectations the Federal Reserve would keep interest rates low for an extended period.

Analysts were expecting gross domestic product in the United States due on Wednesday to have expanded by 1 percent in the second quarter, down from a 1.8 percent rise in the first, according to a Reuters poll. That should persuade the Fed, which starts its two-day meeting on Tuesday, to keep monetary easing intact.

These are all dollar-negative scenarios.

“The market seems to be positioning for a lower GDP number and for the Fed to keep its monetary easing in place, causing weakness in the dollar,” said Brian Kim, currency strategist, at RBS Securities in Stamford, Connecticut.

Fed Chairman Ben Bernanke ha indicated in May that the U.S. central bank may start phasing out its bond-buying program in September, which fueled a dollar rally, but he backpedaled a few weeks ago, saying quantitative easing will stay as long as the economy remains weak and inflation low.

A reduction in the Fed’s stimulus is positive for the greenback because that could push U.S. interest rates higher, making the dollar attractive to investors.

In early New York trading, the euro was up 0.2 percent at $1.3289 after hitting $1.3301, the highest since June 19. Europe’s common currency was also helped by surveys showing improved euro zone economic confidence.

The euro’s gains could be short-lived, with the European Central Bank meeting on Thursday and is likely to keep monetary policy loose as well.

The Bank of England also meets on Thursday, and is likewise expected to retain its easy monetary bias.

Analysts at Barclays recommended reinitiating short euro/dollar positions, with a target of $1.28 and stops at $1.3430.

Against the yen, the dollar was little changed at 97.98 yen It erased earlier losses after data showed U.S. house prices rose in May.

The dollar was flat against a basket of currencies at 81.646 , above Monday’s five-week low of 81.499 and chart support at 81.524, the 200-day moving average.

“The broader dollar strengthening trend remains very much alive,” Barclays analysts said, adding that firmer U.S. data, including monthly jobs figures on Friday, could lead to a stronger dollar.

But traders expected any dollar gains to be limited for now.

“The market is looking to get through the FOMC, month-end and (U.S.) non-farm payrolls before a look back towards buying the dollar again,” a London-based trader said.

AUSSIE, SWEDISH CROWN FALL

The Australian dollar fell to a two-week low of US$0.9050, just above a near three-year trough of US$0.8998 hit in mid-July, after Reserve Bank of Australia Governor Glenn Stevens said the currency could fall further and there was room for more interest rate cuts. It was last at US$0.9091, down 1.2 percent.

The Swedish crown also lost more than 1 percent against the euro after data showed the Swedish economy unexpectedly contracted during the second quarter. The euro hit a two-week high around 8.6958 crowns. It was last up 1.1 percent at 8.6824.